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Freight slowdown drags on
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May 11, 2001: 2:24 p.m. ET
UPS restates lowered 2Q guidance; Atlas Air sees no rebound, cuts pilot staff
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - In another sign of the slowing U.S. economy, two major freight companies say their results continue to be impacted by a drop in shipments.
Jim Kelly, the CEO of United Parcel Service Inc., said Friday that business conditions have shown some signs of stabilizing and UPS should be able to meet lowered earnings targets for the second quarter.
But Atlas Air Inc., one of the world's largest air cargo carriers, said it is no longer expecting the pickup in freight shipments it was counting on for the second half of the year. While the company did not change its earnings guidance, it did announced it was cutting its pilots staff by about 14 percent.
Atlas, which flies Boeing 747 freighters on behalf of other airlines, said it would lay off 105 of its 765 crew members. The crew members will be given severance packages, although the company hopes to recall them when business conditions improve.
The company said it had hired new crew members in anticipation of a pickup in freight that it no longer expects will occur.
"We believe it is in the best interest of the company and long-term interest of our employees and shareholders that we act decisively in the face of the current economic downturn," said Richard Shuyler, CEO of the airline that is behind only FedEx Corp. (FDX: down $0.59 to $38.61, Research, Estimates) and UPS in terms of air cargo carried.
"While we hope to see a strengthening in demand as we go into the second half of this year, it is only prudent to take those measures necessary to ensure that we are best-positioned to deal effectively with any prolonged economic weakness," Shuyler said.
The announcement sent shares of Atlas Air Worldwide Holdings Inc. (CGO: down $0.30 to $23.60, Research, Estimates), the holding company for Atlas Air, lower in midday trading Friday.
Atlas Air is in negotiations with the Air Line Pilots Association, which is seeking the first labor contract at the company. Vicki Foster, spokeswoman for Atlas, said the layoff was unrelated to those negotiations. Officials with ALPA could not be reached for comment Friday afternoon.
UPS sees slowing volume but should hit target
UPS (UPS: up $0.23 to $57.93, Research, Estimates) shares gained slightly on its announcement. Both UPS and FedEx have both been warning investors during the previous six months that the slowdown in the U.S. economy was hitting shipment levels and profits.
UPS has issued two warnings, lowering guidance for three quarters, during the last five months, and FedEx issued its latest warning on Monday, dropping guidance for its fiscal fourth quarter, which ends May 31, and its fiscal first quarter, which ends Aug. 31.
But Kelly stuck by UPS's second-quarter guidance that it expects to earn at the lower end of a 55 cent-to-60 cent a share range in the second quarter. Analysts surveyed by First Call had already lowered their forecasts to 55 cents a share for the period.
The company first issued that second-quarter guidance with its March 22 warning, when EPS forecasts for the period stood at 64 cents. It repeated that guidance it reported first-quarter results when it edged past lower forecasts.
Kelly said that volume growth trends through April and early May were essentially the same as the company experienced at the end of the first quarter -- "flat-to-slightly negative on the ground (shipments), and up a few percentage points for air deliveries."
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Some analysts had lowered UPS's forecasts further after the FedEx warning earlier this week. Kelly was speaking at a transportation conference Friday sponsored by Bear Stearns, whose transportation analyst Ed Wolfe was one of those who cut his UPS forecast. 
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